WASTE AND LACK OF FINANCIAL AUTONOMY ARE THE MAIN PROBLEM OF THE US ECONOMY, THEY CAN ONLY BE FIXED BY CHANGING THE TAX SYSTEM, ALONG PIGOVIAN LINES ALREADY IMPLEMENTED IN WESTERN EUROPE. THIS IS PART OF WHAT CHANGE WILL HAVE TO MEAN, IF IT IS TO BE MORE THAN JUST WORDS.

February 22, 2008 by Patrice Ayme

Abstract: 1) The economic and financial situation of the USA is dire, from the obsolescence of its social organization and physical plant, while depending massively for its spending on the charity of foreigners. Ways need to be found to correct these imbalance. But the US government is financially broke, and so is the country: neither saves enough. Proposed solutions (even by some of Obama's economic advisers at this point) are the same old same old, and have been disregarded both by 35 European countries (among others), and the USA themselves (in the past). One does not create savings by discouraging them.
2) To save the planet while allowing most people to become richer, new technologies have to be invented and made mandatory. The EU has invested that way, massively, but the USA has obstinately kept on sticking to its old addiction of mindless waste and deliberate consumption. This has turned the US economy into a dinosaur fossilizing under the relentless rise of energy.
3) The two problems above combined have led to the credit crisis, the collapse of the US dollar, a probable recession, poverty, bad health care, and, some will say, invading another country for oil... Besides, interfering destructively with all good-natured attempts at modifying for the best the sorry trajectory of the world's ecology.
4) Fortunately, all can be solved in one stroke by forcing the reticent US population in just the same way that the reticent European populace was forced to save and cut down on mindless consumption and waste. Taxes on behavior affecting third parties ("pigovian"), on the European model, should work miracles, as they did in Europe. That is part of what change will have to mean. Not just words, but, also, no more waste. And it starts with us, indeed.
***

In other words, the USA wastes too much, lives above its means from the charity of foreigners, and does not export enough. And does all this ever more. Countries that have got into this predicament did not end up well. It happened to many countries in the 20C, Argentina being a spectacular example (thanks to foreign deficit, it went in a generation from the richest to the poorest and most fascist). It could be argued that depending upon the riches the foreigners were bestowing while sinking in waste, was part of the pathology the Roman empire died from.

Krugman then wondered what to do about these imbalances. We present here a necessary part of the solution. It is not very original. There are many countries in Europe, and a few are large, and they have encountered similar problems in the past, and they hit on that same basic solution, which is a mix of Added Value Tax (AVT, a French invention), which strikes down exaggerated consumption, and high taxes on energy (another French invention which has been imitated all over Europe). An advantage of this is that it's all about regulations, and it may as well be, because the next US president will have no money.

US citizens may feel an existential void if threatened with a dearth of stuff, so one should be careful, lest they have a fit, like the spoiled children they are proud to be. But they may consent to make the US economy more efficient, and more able to export. By doing this, a useful change for the better, their psychological condition should improve, and they should open their minds to another way of experiencing life.

In 2004, the USA emitted per capita 20.4 ton of carbon dioxide per year, and France 6.2 (yes, less than three times less!). Since then the gap got worse, France reducing its emissions (as per the Kyoto Treaty). Meanwhile, to ensure future supplies of ever more CO2, the USA chose to invade the country with the largest oil reserves (except maybe for Saudi Arabia). Whereas the most controversial French energy activities have been building two nuclear reactors of the new third generation (one in Finland), and to push (with the European Union) for ever stricter carbon emission restrictions, worldwide. France having the world's best health care system, and armed forces in combat in even more countries than the USA (including now Darfur), and as much industrial variety as the USA, EFFICIENCY PAYS (with the sort of lifestyle US citizens love).

Thus, clearly, its present system having turned into a dismal failure, the USA should follow the European way, and capitalize on its know how and great universities to invent and develop futuristic energy procurement and conservation systems, instead of dispatching storm troopers to fetch oil.

But this is easier wished than done. The entire US economy has been manipulated for generations to serve powerful corporations such as car manufacturers rather than public transportation, with giant metastatic suburbia, and car drivers, or frequent fliers, taking subsidies for their birth rights, screaming loudly when a penny goes to railroads. All too much of the US economic activity is directed to plane companies and car companies. So great have been these subsidies that these sectors became addicted to them, fat, lazy, numbed out.

Just two examples. In the fifties, General Motors bought the San Francisco Bay Bridge, tore down the railroad that occupied one of the decks, to replace it by a freeway going the other way, and, thus, mission accomplished, sold it back to government. Ever since the San Francisco Bay transportation has been a big traffic jam, as intended. Now for airlines: after 9-11, the US government gave billions to US airlines, whereas the EU did not allow subsidies to its airlines, which were left to mind their business more efficiently. Consequence: Air France and Lufthansa are now by far the largest airlines in the world, and many smaller European carriers are even more profitable, all operating efficient new planes. Meanwhile Europe is building thousands of miles of ultra efficient very high speeds train lines (so fast they could cross the USA itself in half a day).

Hence to develop new, more efficient energy sources and usage in the USA, ASAP, one will have to manipulate a full arsenal of government guided activities, removing some, adding others. Just proffering words will not be enough. One will have to use tax incentives as carrots, while using a carbon tax and an energy tax as sticks: greed and fear, that's how to do it. The enormous taxes on energy in Europe, give both an incentive to be ever more efficient, and a safety reserve if an energy supply catastrophe strikes (energy taxes are huge not only in the UK, a net oil exporter, but even in Norway, one of the world's largest energy exporters).

The history of man is the history of energy usage, and especially of Western civilization. By 1,000 CE, Western Europe had the highest energy usage per capita in the world. This energy opulence allowed to free man from slavery (to lords and nature).

But now energy is getting tight, and there is a huge amount of waste (as said above, the USA is three times more wasteful than France, per head). This has to stop: there is no justice in having the USA with 4% of the world population, using 25% of the energy, a lot of it taken from abroad, and most of it polluting the entire planet. The way out is not to economically shrink, but to technologically grow, as the EU is already doing (in 2008, Germany, although as north as Canada, was the number one solar energy nation!... It's also number one in wind energy).

Of course the economic switch to greater efficiency through higher technology has to pay for itself (otherwise it would not be self propelled). First one has to be conscious of the enormous subsidies old industries profit from (it's not just from distribution of money, but of laws; e.g., ethanol from corn is mandated, although it's an ecological horror, while less ecologically incorrect ethanol from sugar cane is barred by tax barriers). Those subsidies are protected by armies of paid lobbyists (nearly half a million of them in the USA alone). By removing those subsidies for an unsustainable past, one makes it so much easier to pay for a sustainable future.

The Europeans have found a strategy to make planet-saving and riches-spreading new technology more profitable quicker. The EU imposes new standards onto itself, and then the world, to fight the greenhouse effect and other noxious effects of "progress" (such as destroying fertilizers, mutating antibiotics, hormones all over). Thus Europe forces herself to develop new technologies (for example carbon emissions are above 330 mg per kilometer in the USA, but were lowered by law in EU to 185 and now down to 135). Then the EU sells its newly fanged wares (That only more advanced European technology can develop first). It's good for European jobs, and good for the world. An example: strenuous EU emission standards for cars have been adopted by China, making it illegal to buy inefficient US cars (!).

This European way is not new. It is one of the greatest European superiority strategies of all time: USE ETHICAL PROGRESS TO FORCE TECHNOLOGICAL PROGRESS, INCITING AND ALLOWING ECONOMIC SUPERIORITY. In other words a process which starts with better manners, ends with a chicken in every pot.

That STRATEGY OF BETTER ECONOMY FROM BETTER ETHICS was clearly used by the Franks when they outlawed slavery around 660 CE (the Franks understood its importance at the time: from the German point of view, ethics and economy were tied up by small scale family farming, and democracy; they looked down on Roman fascism and its giant agribusinesses). The abolition of slavery forced Europe to chose the high technology route that the Roman empire had given up on (China had episodes similar to Rome: including fascism and destruction of most books by Qin Shi Huang).

Now the entire planet has found useful to integrate more and more of the ideas that allowed Europe to take off during the last 15 centuries. Democracy is just one of those ideas, and, clearly, it was preceded by strength and technology (the Franks destroyed the Arabo-Berbero-Syrian armies in a series of battles and wars in 8C Francia, accompanying economic lift, and requiring new, very heavy taxation to pay for their high tech armies).

China and India, among others, have understood this, and their success has not escaped notice. The most successful developing countries opt for developing new high tech. Brazil builds excellent jets. South Africa is inventing “pebble bed” nuclear plants, a completely new technology designed specifically for exports all over the developing world (they are super safe, and never stop). India, having little uranium but lots of thorium, is developing a uranium-thorium breeding scheme which is entirely appropriate to its precarious energetic circumstances.

Sweden has been using a carbon tax for more than a decade, and it's just a matter of time before the entire EU follows suit. To limit senseless addiction to consuming and reduce fraud, the Europeans use the mighty AVT. The USA has no choice, but to follow what has worked well in dozens of advanced industrial nations.

But, all too often, per the nature of the USA as a big island, and a long settled habit to compare itself to various derelict dictatorships (instead of comparing itself to the most advanced democracies), Americans often find hard to learn from the outside (something a future president Obama should be able to remedy).

Presented with these solutions, Krugman evoked Saint Augustine to justify doing nothing for now ("Make me without sin, oh Lord, but not yet"). Well, that is a very telling example. Saint Augustine was one of the worst anti-intellectuals and anti-Judaists of all times, in truth one of the greatest criminals against mankind, and this statement reflects how he could live with himself so well. His hypocrisy allowed him to do so, conveniently blinding him, and made him the scourge he became for civilization. The hardest in a new task is often just to get started, to make the first step, it's time to reject Augustinian hypocrisy.

The massive energy and consumption taxes the USA needs could be, and would have to be, staggered very progressively. They will allow to reduce taxes in some other areas (say on capital, and the poor, as the EU has done).

The bubble economics, its hedge fund managers, and the tail of the financial sector wagging the entire economy, a sorry mess weakened the USA dramatically (that feat of leverage for con artists was engineered by Rubin, Clinton, Greenspan and Bush). Only taxes reflecting the new (for the US) philosophy of reducing waste and changing the future towards efficiency will allow the USA to join the world, reduce the imbalances, and develop in a sustainable way. It's a necessity, because the rest of the world cannot be expected to work hard and sacrifice, while the Americans are having an orgy, and burn the house down. A related point is that, as justice spreads and six billion people from the developing world get to enjoy some of the amenities Americans take for granted, grave ecological damage to the entire planet will only be mitigated by using technologies that, at this point, are still in the domain of science fiction.

In conclusion: reducing US consumption and carbon emission, while boosting US exports and efficiency, and providing more jobs and security, can be viewed as one problem which will need a change in the US tax system. Against waste, towards a more economic future. That is part of what change means, or it will be more of the same. Americans are getting intoxicated with the idea of change, but change means changing their own behavior, ultimately a change in the law of what is proper and what is not, and the easiest such change is in the tax law.

***

P/S 1: So far, to reduce the lending crisis, which came from too much lending, the US president and congress have decided to make it easier to lend some more. So let's not overestimate the capacity of US decision makers to understand the universe. In a related show of selfishness, the US (through the IMF and the World Bank), forced South East Asian countries, which were experiencing a bout of over-investment (thus diminishing returns, leading to a confidence crisis), especially in real estate (thus comparable to the present US crisis), to rise interest rates sky high. Yes, you read that right. That was supposed to invite foreign investors to come back, and stop the collapse of the currencies. Instead it collapsed the South East Asian economies. This was in 1998, and it was about South East Asia. Now we are in 2007, and it's about the good old US. Following once again Saint Augustine (id est, I will not do as I preach, but just the opposite, the fundamental saying of priests, and one of the reasons why religion is so big in the USA), the USA, although now in a very similar crisis to Asia in 1998, is acting according to the exact opposite strategy, namely collapsing interest rates. As we tried to explain above, this very short term alleviation of symptoms will not change anything fundamental. Ultimately, US citizens have to learn to relate to the world in a different way, because the transactions they have among themselves have impacts on third parties (this is the set up for pigovian taxes (after Arthur Pigou, 1877-1959, a Frenchman); theory has proven such taxes more efficient than regulation or markets (the carbon emission trading has turned silly)).

P/S 2: That better ethics gives a better economy was at the root of the success of Crete, Greece and Rome. Their new ethics was democracy (in different settings and scales). The Franks imposed a non sectarian version of German ethics, a realm of ethics that had long fought the Greco-Romano-Christian world, from a superior point of view, more sensitive to individual freedom. Superior ethics led to superior economics. On the most macro socioeconomic scale, that allowed the European socioeconomic lurch forward. On a microscopic scale, the USA has to do something similar now.